Plain English Finance

Ep. 26 | Investing Basics: Understanding Risk

• Tre Bynoe • Episode 26

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In this episode of Plain English Finance, Tré Bynoe, CFP®, CIM® breaks down the foundations of smart investing. Joined by Sierra, he walks through the same conversation he has with every new client — what “risk” really means, why most people misunderstand it, and how to build a portfolio that matches both your goals and your comfort level.

Tré explains how to think about equity versus fixed income, why the U.S. still dominates global markets, and how to stay calm through inevitable market drops. If you’ve ever wondered how to invest confidently without losing sleep, this episode gives you the clarity and structure you need.

Key Topics:

  • How to define and measure investment risk
  • Why education increases your tolerance for volatility
  • The importance of matching investments to time horizons
  • Global diversification and Canada’s small slice of the world market
  • Why big market drops are normal — and what to do when they happen
Tre:

Hello, and welcome to the Plain English Finance Podcast. The podcast is dedicated to helping you make smart financial decisions. I'm your host, Tre Bynoe, certified financial planner and chartered investment manager. I'm a financial planner of TCU Wealth Management and Aviso Wealth. For more information or to send in your questions, check out the show notes at trebynoe.ca/podcast. If you wanna learn more about. Start with episodes one and two, so let's get into the

Sierra:

no idea.

Tre:

26th episode. Uh, it has been a lit, it's been a few weeks. We was on vacation or away with family and stuff last week or the week before. Yeah, it's all blurring. Yeah. Time has kind of gotten away from us, so. It's been a few weeks since we recorded, uh, recorded an episode, but

Sierra:

mm-hmm.

Tre:

We are back with Venge. We are here now. Vengeance. There we go. A

Sierra:

vengeance. Wow. Okay.

Tre:

Yeah, fortunately, we, we record these well in advance, so it's as, it's middle of October now and this will be coming out in middle of November time, end of

Sierra:

November. Yeah. Middle

Tre:

end of November. So

Sierra:

yeah,

Tre:

we have a little bit of buffer because as I get to my busy season. Definitely won't have time to be doing both. So anyway, this, this episode is, well, this is on investing basics. So it's the basics that, um, that I still have am yet to go over. And I thought what would be cool is like, this is the conversation I have with pretty much every new client that I take on, somebody that's new to investing or new to, to me or anything along those lines, um, to make sure that the, the basics are covered. So I kind of get a, like, role play. I guess. We've never had this conversation either. Yeah. So it's not really, I'm like,

Sierra:

it's not really role playing. I've never done this.

Tre:

Yeah. So maybe you'll I'll

Sierra:

be the client. Yeah. I'm your new client,

Tre:

so maybe you'll learn, learn. You'll, I'll go go through literally what the conversation kind of, kind of looks like. Okay. Um, yeah, so as I said, it's, it's on investing, so we're just gonna start with the basics. Okay. Let's just do it. Um, okay. So I always start with asking them what their experience of investing has been. So. What's your experience of investing been? You can be honest. Okay.

Sierra:

My experience of investing is, here's my money, Tre, do what you will with it. Okay. Fair enough. No, I mean, uh, that's not completely true. Like I, I know a little bit. I just have again, like. It just doesn't make sense for me to like take that on because you're so in that world we're

Tre:

That's okay. Let's, I know, I

Sierra:

know. So that I do know a little bit. So

Tre:

what do you know? So let's go back to the last big drop that you experienced.

Sierra:

The last big drop was, I think it was when the interest rates all changed for like a

Tre:

20, 22. Yeah. How did it make you feel?

Sierra:

Um. Mad about the mortgage.

Tre:

Okay. What about with the investing piece?'cause you've seen the investments drop.

Sierra:

Yeah.

Tre:

Did that concern you did that?

Sierra:

No. I felt like I feel quite neutral, I think, to the investments. Yeah. Yeah. Okay. I don't know. I don't,

Tre:

honestly, that's what a lot of people say's. Very few people that. Especially when they, when they're looking in hindsight, do they say, I was really panicked and I lost sleep over it, and I was really worried about it. Mm-hmm. Most people will say something along those lines of, well, especially if they're not retired or anything like that, then I don't know. I, I know I'm meant to stay invested, so, yeah, I, I've always seen it come back. but it doesn't stop people from making bad decisions for some reason. But people tend to know. Tend to know that. Mm-hmm. So then I'd say, or go down the lines of, okay, so that was your, your experience. Could you describe what type of investor you think you are?

Sierra:

Uh, I think I am a, I'm not gonna use risk because there's too many definitions of risk.

Tre:

Oh. If that's how you'd describe it. And

Sierra:

No, I think I'm like, I wanna allocate every dollar for the time. That that dollar needs to be in. You're smiling so big right now, you're

Tre:

cheating.

Sierra:

I can't help it. I'm like, do you think

Tre:

you're a high risk investor, low risk investor, medium risk? What do you think?

Sierra:

I'm just it depends what it's for and what is risk like that. Those are things that I would genuinely. Say I, because

Tre:

that's fair. Yeah. That's, I can't help the

Sierra:

knowledge bias now. Yeah. I can't. It's like that is what I would say, so. Right.

Tre:

So most people will come up when you talk to'em about what type of investor they are. They'll come up with, they'll say low risk. Yeah. They'll say low risk, medium risk. I'm a high risk, she's a higher risk than me. They, they'll, they'll give themselves some, they'll assign a risk category to them. Mm-hmm. So then my next question is. What does that mean?

Sierra:

Mm-hmm.

Tre:

Like you say you are a medium risk investor. Well, what does that mean

Sierra:

and what do they, or do you want me to just answer? Sorry.

Tre:

No, I, I, I can answer. So a lot of them, the issue is that they don't know. Yeah. Right.'cause that's what I was thinking.

Sierra:

I'm like, what would you say?

Tre:

Yeah. So a lot of people will say something along the lines of, oh, well I've been invested in like medium risk investments, like a balanced fund, right? Is what they'll say. Mm-hmm. I've been invested in a balanced fund. Because I'm a balanced investor and I say to them, okay, I'm gonna go through what risk really means and how we allocate risk in, in my industry. When we are talking about risk. Could you tell me some really risky activities that aren't to do with investing, but maybe to with money that you can think of is very risky.

Sierra:

Gambling.

Tre:

Okay. Gambling. The lottery. Gambling. Okay. The, okay. Uh. When it comes to investing, what type of investments would you consider high risk?

Sierra:

Some random coin somebody made up like Dogecoin.

Tre:

Okay. Why would you consider a high risk?

Sierra:

Because it has no merit. It's just a random thing that society has assigned value to for a certain amount of time.

Tre:

Okay, but why? Why is that risky?

Sierra:

Because it doesn't actually hold value. I guess the way I would look at it is like a company, okay, that company has some sort of value. Somebody just saying, I made this money. It's like, okay, maybe I don't fully understand it. That could be part of it too.'cause I don't, but I, that's why I would think it's more risky because it doesn't actually, like, what is it? How, how is it providing any value to anybody? Like it's just this random thing that somebody made up or like, you know, those, I can't remember what they were called, but they were like these art, digital art

Tre:

NFTs.

Sierra:

Yeah. It was, I don't quite, because I don't understand it and I don't really care to understand it all. I just feel like that's a risky investment because I don't have the knowledge personally to understand like what value it actually adds. So I would avoid it.

Tre:

Okay. When you say. Risky. Why is it risky? So you mentioned a few things because it's somebody just assigning some value to it. So what,

Sierra:

so why is that risky?

Tre:

Yeah. Like you didn't actually say what, like what, what's the risk? What are you afraid of?

Sierra:

Um. The risk would be losing the money you put in.

Tre:

Okay. That's the risk that everybody's talking about. Yeah. So that's what most people say. So they'll come up with or help them get to that point. Yeah, where they'll come up with examples that are risky, roulette table risky gambling, risky, investing in a. Goldmine risky. And it all comes back to one thing. They do not want to lose money,

Sierra:

especially, uh, well, I think specifically for, for me, I don't know, maybe for them too. You don't wanna lose what you put in. I don't. Like, that's how I would view, it's like people,

Tre:

people have an anchoring bias, so it doesn't really matter what they put in. As soon as they see a higher number, that's the number that they anchor to. So yeah,

Sierra:

that's true. I've done,

Tre:

yes. Yeah, it's not really about the money that they put in. That is definitely worse. Right? If I go put a hundred thousand dollars into something and it's worth, I still think about a client though. I, um, by far the worst time period that they started, well, they started 2022, so the end of. So end of 2021, um, they put money into the markets and then like, it was like December or something, and then just dropped,

Sierra:

oh no, for

Tre:

a good year and a bit, and then finally came back up, et cetera, et cetera. But it meant that their first experience working with me was just losing money. Um, fortunately I am very particular about the way I just talk about stuff, so it didn't make a big difference. Yeah. But even for me, I'm like, ugh. It was just like, just like sorting off

Sierra:

on the. You don't want to

Tre:

compared to, there's clients that started working with me, the middle of COVID and made a crap ton of money. And I said the same thing to them. It's not me timing, luck was on our side, but regardless. Yeah. Okay. So most people say risk of losing money. That's really, and I help them get to that point, so, okay. I'm afraid of the risk of losing. Okay. And then I say to them, okay, so you said that you have, until now you've been invested as a balanced investor. Mm-hmm. So I, I would say the, the vast majority of people that come and work with me are people that have been investing for a while. I don't really typically work with people that I'm new to investing.

Sierra:

Yeah.

Tre:

Um, normally they have either met a milestone, they've outgrown their current advisor, whatever it is.

Sierra:

But

Tre:

they're, they're not brand, brand new.

Sierra:

Yeah.

Tre:

So I say, okay, so I can see your statements'cause they're bringing statements and everything and they've been invested X, y, Z. Tell me about that. Tell me how that decision was made.

Sierra:

Like to pick a balanced fund sort thing. Yeah. So I'll

Tre:

say what, so you picked a balanced fund here. Why not? So it's a 60 40 fund. 60% of it's in equity, 40% of it's in fixed income. Why not a 70 30? Mm-hmm. Or why not an 80 20? Why not a hundred percent equity? Then we go down the line of, well most people they don't really know it's,

Sierra:

yeah.'cause it's just

Tre:

what was told to them. They filled out a survey at some place and they came, their risk assigned to them, et cetera, and they just got thrown in a fund. Yeah. I feel like it's

Sierra:

almost like that 4%'cause we just did that episode. Um, it should be just before this one, I believe. Where it's like a, an advisor will just say like, 4%. Remember? Oh, yeah. As the benchmark thing. Um, I feel like it's similar to that. It's almost like the balanced fund. I'm thinking of my pension plan. You just get put in the balanced fund. It's like, oh, why'd you pick that? It's like, I didn't. Somebody

Tre:

It was, it was the default option.

Sierra:

Yeah. I didn't do anything. I just signed the paper and like, oh,

Tre:

given a list of three items. This was in the middle?

Sierra:

Yeah,

Tre:

that's the one that picked Mike.

Sierra:

Sounds great. Yeah, yeah,

Tre:

absolutely. Because most people don't understand it. So then I show them this page and so I show them, so this is, wait, can you actually see it? Okay. So a lot a, what you see is along, along the top, it gives different equity weights in a portfolio and fixed income weightings in a portfolio. Yeah. And I say to them, okay, the data shows for any timeframe, the right decision is a hundred percent equity.

Sierra:

Hmm. That's crazy.

Tre:

Okay. A hundred percent equity portfolio is medium risk. Okay. Because of what it's invested in. These are broad indexes. I am a broad market investor. Get into that in a later episode, but. What I am put putting you in this a hundred percent equity, if you did this day in, day out for your whole life, would be most likely the best, best decision for you. Most people can't live with those ups and downs. I think that's very, very valid. But I don't want to sell you short and use my own bias and to determine what you can or you can't handle. So let's take a look. Then, so what we, what you see is, I say, uh, it's a big misconception that something with that something that is a hundred percent equity is suddenly, significantly more risky. It's the same equity. You're just holding it in smaller amounts inside of a portfolio.

Sierra:

Okay,

Tre:

so the difference between a that 20 80, so 20% equity, 80% fixed income mm-hmm. And that 80 20, 80% equity, 20% fixed income. The difference, there is no difference in the individual items in that portfolio. So there's no, it's not different bonds or different stocks, right? You're just

Sierra:

putting more dollars into one

Tre:

or the other. And the purpose of fixed income in our type of market is to reduce the ups and downs of a portfolio. Mm-hmm. And you can see that in action. So if you go to the bottom of this page, you see the red section?

Sierra:

Mm-hmm.

Tre:

What does the two labels on the left say?

Sierra:

Lowest one year return percent and lowest three year annualized return. Okay,

Tre:

so let's look at the three year, okay. Three year percentages. I try to steer them more towards long term thinking. Yeah. Um, I, I look at both of them, but for this purpose, we'll look at the three year,'cause we're here. Um, anyway. Okay. Uh, so the first section, so the, the 20 to 80, what does it say For the worst three year period?

Sierra:

So, 20 equity, 80

Tre:

fixed.

Sierra:

And the three,

Tre:

yeah,

Sierra:

it's um, 0.33 negative, like negative 0.33.

Tre:

Okay. And then the next one over. So this is 40% equity,

Sierra:

60% fixed?

Tre:

Yeah. What's that one?

Sierra:

So that one is negative 2.72.

Tre:

Okay. And then the next one,

Sierra:

uh, negative 6.29.

Tre:

Okay. Next one.

Sierra:

The next one is 80% equity, 20% fixed income, negative 9.75.

Tre:

Next one,

Sierra:

a hundred percent equity is negative 13.01.

Tre:

Okay, so what that shows is there is a direct relationship to the amount of equity you have in your portfolio. To the downs that you would likely experience.

Sierra:

Mm-hmm.

Tre:

Okay.

Sierra:

Yeah,

Tre:

so that is an important to note. The more equity you choose to have in your portfolio, the more downs you are going to experience. There is no two ways about that. You would experience more downs the more equity you have in your portfolio, or at least you should expect to. Yeah. Right? Yeah. Above that is the, so not the standard deviation. Uh, the one above that is the annualized returns. You see that?

Sierra:

Oh, yes. This section,

Tre:

I can't see,

Sierra:

oh, sorry. I'm holding the laptop, looking at the screen myself, and I'm like, this one anyways. Um, so the top one or, yeah. Okay. And you want me to go through every number or,

Tre:

yeah. So, but just highlight it. So this is the 80 20 one. What is the number?

Sierra:

Uh, 5.72.

Tre:

Okay. Then, uh, 60 40, let's just use them.

Sierra:

Jump up is, uh, sorry, 8.07.

Tre:

Okay, keep going.

Sierra:

And then 80% equity, 20% fixed income is 9.07 and a hundred percent equity is 9.96.

Tre:

Okay. So what you'll see there again, what's the relationship,

Sierra:

the number. Stayed pretty similar. Sorry, I wasn't really paying much attention.

Tre:

You're not paying attention. How has anybody listening? Sorry.

Sierra:

No, I just mean like I'm, yeah, I'm looking at this chart and I don't fully understand it. I'm trying to focus on the numbers, but

Tre:

So what, sorry, what don't you understand about this?

Sierra:

Like what? What am I looking at right now? Standard deviation or whatever.

Tre:

No, I said don't look at that one.

Sierra:

Yeah, I highlighted the ones I was looking at.

Tre:

Okay. That's not standard deviation. So this is return. So this is the return of these various portfolios. Okay. Over different time periods. Okay, so this is between 1994 and 2024. Okay? But above here, you'll also see, three years, five years, 10 years, 15 years, 20 years. But what you'll notice amongst all these years, no matter the timeframe that you pick, you'll notice the more equity you hold in a portfolio, the higher the return. Mm-hmm. There is a direct correlation between. The downs you'll experience and the return you'll get at the end of the day.

Sierra:

From equity.

Tre:

From equity, it doesn't mean that portfolio, the portfolio is what you're holding is significantly more risky, right? Of that risk that people are scared of the risk of losing all of their money. So, but it does mean that you will experience higher ups and downs.

Sierra:

That's like what we talked about in the risk episode, where it's the market risk. Which is the risk of the markets moving. Mm-hmm. That's that risk. Yeah. But people just assume that's like the absolute risk, right?

Tre:

Yeah. Yeah. So, okay, so I, I go through this with them and I say I will want to push you towards as much equity as possible.'cause I would rather. You turn around in 20 years and say, I, and I have to talk you off a ledge, of investing, I think I can do that pretty well, versus you look back and say, Hey, I could have handled a hundred percent equity. Not that I recommend a hundred percent equity to everybody, but I could have handled a lot higher equity allocation than I did, and now I am hundreds of thousands of dollars worse off. Because I said, I don't think you can handle it.

Sierra:

Yeah.

Tre:

Right. Yep. And I, the reason is because with more education, people's risk tolerance goes up. Yeah. When it comes to investing.

Sierra:

Absolutely. Yeah. Makes sense.

Tre:

So a lot of it is to do with not understanding, not knowing, not one, not caring to know versus truly risk that you are, that you're facing. Okay. So that's what I go through with them. Mm-hmm. I say. So what I like to do is match the timeframe to when you need the money, because while I don't want to tell you, I don't want to not give you enough risk, not not increase the allocation to equity. Sorry, let me rephrase that. I do not want to undersell you on risk, the amount of risk that you should take in a portfolio. I also want you to be able to stay invested while you are learning.

Sierra:

Yeah,

Tre:

and a big thing for me is I like to teach and like to, I want you to learn how to make these decisions yourself. So I use a framework. What we'll do is we will determine how many years of safety you need. Okay. And that safety, however many years we decide that safety will be our cash and our bond allocation.

Sierra:

Right.

Tre:

And that is how we'll build the portfolio.

Sierra:

Yep.

Tre:

So it means that when we are investing in a, especially in a non-registered account, or like money you can access, the first thing we'll do is we'll build up and. Every penny that we're investing will go towards building up those years of safety. And then everything that we're investing after that will be into equity. Right. And what that would mean is your safety allocation in your portfolio will stay very, very stable, very similar. And then we will revisit the overall allocation as time goes on,

Sierra:

because those years of safety might change and whatever. Yeah.

Tre:

But those years of safety are there. And that then allows us. Me with my knowledge, I know, okay, we have x, y amount of years. That means we can take the risk, the ups and downs, the market risk with the long term. With the long term money. Mm-hmm. Okay. And that's where I get investing to the right timeframe for'cause that's how you push somebody to invest to the right timeframe. Yeah. Okay.

Sierra:

That makes sense. Give us a little safety blanket, you know?

Tre:

Yeah.

Sierra:

But at the same time, yeah. Making sure people learn, man, you sound like a great advisor. I think I'll hire you.

Tre:

Okay, so then I talk about the how we invest. So a lot of Canadians love Canada. They love to invest in Canada.

Sierra:

If,

Tre:

if you give them half a chance, they'll invest everything in Canada. All Canadians hate the US right now, so nobody wants to invest in the us. This has been a theme for a very, very long time. Then we move on to this chart here, this chart shows the global equity markets capitalization, the big gray box. Mm-hmm. You see that? Can you kind of describe how big that box is?

Sierra:

On page? On the page? Yeah. The big gray box is like a quarter of the screen, I would say. Okay. A third of the screen maybe.

Tre:

Okay, and what is that? That's the US market.

Sierra:

Mm-hmm.

Tre:

You see that little box above?

Sierra:

Like within it or this one? No, above.

Tre:

Yeah. What does that say?

Sierra:

Canada?

Tre:

Yeah. Yeah. So the US is, it gives a percentage there.

Sierra:

Yeah. So, okay. It shows the big gray box is the US 65%.

Tre:

So 65% of the global equity markets is the us.

Sierra:

Okay. And then 3% Canada?

Tre:

Yes.

Sierra:

Wow. What are we doing? Look at

Tre:

Apple. Which is the apple

Sierra:

is 4%.

Tre:

Exactly. So when people say. Hey, I just want to invest. I don't, I want to exclude the us. No, no, you don't. Yeah. I don't want to exclude the US no matter what you, no matter if you hate the politics or whatever it is, do not let that get in the way of you making good decisions with how you manage your money.

Sierra:

Mm-hmm.

Tre:

And the reason that, I also will show this is because this is the reason we invest internationally. So right now, in 2025, international investing is the craze.

Sierra:

I've

Tre:

been investing internationally forever.

Sierra:

Yeah.

Tre:

It's how you invest. It's, it's not a, a fad. Now, suddenly start investing internationally. Internationally is a huge part of the world's markets. Yeah. You should invest there. You should have money there. You shouldn't just do it because you are not so thrilled with the us. Okay. Yeah. Globally diversified. In a logic based manner, rules-based manner will get you good results. So this is why I say I, and they'll often come in with these, like these ideas. I don't wanna invest here, I don't wanna invest there. There are advisors out there that will cater to individuals preferences in that capacity. I am not one of them.

Sierra:

Yeah.

Tre:

It's as simple as that though. When I am investing money, I need to have, I need to know it's gonna work or, as much certainty that it's gonna work as humanly possible.

Sierra:

Yeah,

Tre:

right. Without

Sierra:

knowing any of the future.

Tre:

Yeah.

Sierra:

Do you think it's just because people are like, oh, I live here, so I'm familiar with it and that's why I, yeah. There was also

Tre:

rules. There used to be rules about you had to invest a certain amount in Canada. Oh. And you should absolutely invest in Canada. I, I think that's, I think Canada is actually a very, very good place to invest. Yeah. It's just not the only, it shouldn't be 80 90,

Sierra:

yeah.

Tre:

95% of your portfolio. Okay. So I limit it to around, 30% of a portfolio. It's, that's where the, when you look at the numbers and the data around in that range between 25 and 35 is a sweet spot for home equity. That's where I keep it.

Sierra:

This is kind of like a quick side like story or theory I guess. Um, it makes me laugh to think back when I was a teller, people would come in like, um, maybe I don't wanna like stereotype. I'll just say people, some people would come in and say, uh, like I don't wanna keep all my eggs in one basket. So they'd have multiple like. Checking accounts at different banks, and I always thought that was so weird, but I feel like those are the same people who are only invested in Canada, which just like, I think you have the whole idea wrong. Anyways, um, I digress. That's just a random little thought that came into my head not to offend anybody. Oh, boy.

Tre:

Yeah. Well, I'm not getting into that. I'm not, yeah, that's fair. Okay, so talk about global equity market capitalization, because I want people to understand how big the world is. Okay. Then I focus so heavily on the downs that you'll experience. We saw the, the upside of the markets., everybody knows the markets go up. It's been the single best wealth building tool humanity's ever created.

Sierra:

Like the markets. The markets, yeah.

Tre:

Global financial markets by far. Bar none. There was a time when, if you was in ancient Rome, in order to be able to grow money. You had to then go and start a business, buy land, et cetera. You couldn't, the average folk couldn't just go in and buy a small piece of the Roman economy.

Sierra:

Yeah.

Tre:

You couldn't do it. It meant, it meant it. Having the global markets is a significant equalizer when it comes to wealth creation because everybody's got access. Right. Are part of the world.

Sierra:

Yeah.

Tre:

Okay. Anyway, so this is the s and p 500 and these are intra year declines. So we look at the markets and we say, okay, it goes up. People know that it goes up, year to date. So in 2025, when this was, um, this is as of the last quarter. Haven't done my quarterly review yet, sent it out, but I guess by the time this goes out, it'll been out for a month. Um, but yeah. But anyway, so we, we see here in gray, so the gray bars are how the market's performed in that year.

Sierra:

Okay.

Tre:

Okay. At the end of the year, so January 1st to December 31st. So by, but this is the

Sierra:

quarter of it. Sorry. No,

Tre:

no. This is just, sorry, this year to date one. Okay. So, but all these previous ones are years. Okay. So it goes all the way back to the eighties. I see.

Sierra:

2008.

Tre:

Yeah.

Sierra:

Okay. What I'm, what's that big line going down? Okay,

Tre:

but what is the red, the red dots. What do you think that is?

Sierra:

Uh, the red dots versus, like the lines. Yeah. So

Tre:

the, the black, the black lines are what, what the year ended up.

Sierra:

Yep.

Tre:

What do you think? The red is

Sierra:

probably the lowest low of the year.

Tre:

So the biggest drop during the year?

Sierra:

Yeah.

Tre:

What do you notice?

Sierra:

It's always, the black line is always higher. It seems just off true. It is. Yeah. Just off of a quick glance.

Tre:

Yeah, it's kind. Yeah, it is. Uh, but there is one for every single year.

Sierra:

Ah, there is a big drop. Yeah.

Tre:

The markets never just go straight up.

Sierra:

Hmm.

Tre:

During the year, not how the markets work. Even in great years. So we looked to, we looked to even the most recent times, so last year, so 2020, um, four, there was an 8% drop and the markets were just on a tear. 10% drop. The year before that 25% drop in the year before that 5%, 34%. Yeah. Like the 34% drop was COVID, and the markets ended up 27%.

Sierra:

Crazy. So that's like a really big like swing I guess when you think about it.

Tre:

And even in down years. So this year the biggest drop was negative 20%. So I have a million dollars invested, dropped to$800,000 and ended at negative 6%. Right? And then it was followed by great years, et cetera. But you'll notice that every single year there are big drops. Yep. That is, or a

Sierra:

drop of something,

Tre:

depending on what you consider a drop. Big drops. The average drop is 14%. Hmm. But the returns were positive in 34 out of the last 45 years. Wow. That's good. So the batting average, you know, 75% or so, the markets are up. It's even with these big drops. Yeah. But you have to expect the drops. Yeah. And I focus heavily on that because, well, first of all, I don't want to answer, hundreds of people's.

Sierra:

Calls every,

Tre:

every small drop. I

Sierra:

wanna fill it all out. Yeah.

Tre:

Every 5% movement, it's like 5% movement happens in a week. I sleep fine. Yeah. Um, but I need them. I need them and people to understand that market swings. Totally, totally normal. Yeah. In fact, I am more concerned when there's not. Hmm. Because then it means something else is going on. Yeah. So even, even this, in the like last year when only negative 8% is, it was straight up practically the full year. So it's just keep in mind when you're investing big drops are normal. Totally normal. Yeah. And, and that's why I struggle to, I struggle with advisors that just put clients in like low risk things out of the gate because why is this scary? This is only scary if you

Sierra:

are investing for three months and like Yeah. Kind of thing. And,

Tre:

and even though I would say it's only scary if you don't understand it. Yeah. If you don't expect it, if you think that, you know, markets don't do this because you've just looked at the gray lines and you're like, okay, well, you know, one in. One in every three, four years is a negative year. And then suddenly you are in September and markets are down 15% and you're thinking, well, this only happens once every three years. It's like, no, this happens every year, multiple times a year. This is normal.

Sierra:

Yeah.

Tre:

Don't worry about it. Not the point. Go about your day. Just be fine with it. Yeah. So make sure you have a plan. And that's when I, when I start stressing. Make sure the way that we'll invest is we make sure that you have a plan. If the market dropped tomorrow, what am I going to do? And unless you can answer that, I don't even know

Sierra:

start, you need be able to answer that. You start pointment over like, okay, back to square. You need

Tre:

to, no, like you, I just, for people in general, if you're investing. You can't answer that question. You're probably taking on too much risk. Taking on too much market risk. That is a really important question to be able to answer.

Sierra:

If someone was like, ask me, okay, if the markets go down tomorrow, what are you gonna do? I would just be like, nothing. Is that a valid Yeah. Answer.

Tre:

Right? Why? Why can you say nothing? Well, I've got employment, I've got a job, I've got, you know. Yeah, I've, I've, as long as you have a plan. So people that are relying on their money, for instance, that's where we get the cash wedge, which will be in a later episode. But we have a plan. You need a plan

Sierra:

like people who are retired already. Mm-hmm. Who take it. Yeah. Not

Tre:

necessarily retired, just relying on their money. Think of it as you either, because lots of people will, I work with lots of people that will work part-time, right. Because they have enough to make ends meet or whatever. So just as long as if there's money that you're relying on. You need to better answer the question, what am I gonna do if markets drop? And for me, for instance,'cause we're a hundred percent equity, don't keep very much cash. I have lines of credit for that scenario.

Sierra:

Yeah.

Tre:

And people, whatever your opinion is on that is, is irrelevant. I have a plan.

Sierra:

Yeah. If

Tre:

we absolutely need to, I can borrow money. I have access to capital. If, if we needed to, there's also something to be said to, even if markets did drop, let's say they dropped 40%. It's still worth more than I put in.

Sierra:

Mm-hmm.

Tre:

You know, it gets to a point when,

Sierra:

but it's not that anchor re it's not that anchor. I, I like that anchor. Yeah. The biggest number. That's my new, that's a new starting point. Yeah. Yeah. Yeah. Not the lowest, the biggest. Yeah. It's gotta, of course. Yeah.

Tre:

Yeah. And you reset it every year as soon as it hits the Yeah. Yes. And statements statement. Months, the worst months.'cause if there's, if it's a, if it happens to be a high and then they're low. It's the worst thing. But if you get the high and then the market crashes and it recovers by the next statement like it did this year, nobody even knows. It's like the, the anchored biases. Yeah. It's huge. But anyway, so they're the things, they're the, the three points that I hit pretty much in every single new, when we're talking about the investing piece. And this doesn't typically come and tell you the very close to the end of the appointment.'cause that's when I'll go through exactly what. If it's like a newer client, exactly how we're investing. If it's a client that I need to do planning and stuff like that for, then we won't even talk about the actually what it's gonna go into. I'll just give them an idea of what I'll be using to construct their portfolio. But this is what we're going And the only other thing that I discuss, and this is dependent on the individual and where they are in their life, is portfolio funds. So portfolio funds are a really easy way to. To invest for a host of reasons I personally hate them. I understand why you'd want to use it. I really do. And for the vast majority of people, if you are just putting money aside for retirement and that is what you're investing for, I think they're great for that purpose. But as soon as you are accessing, like there's stages of wealth creation, one of the stages is using your portfolio to pay for your life. Now. As soon as you are in that scenario, you need access to different areas of your investments. As we first looked through the first thing that I showed you with the, how they've performed and showing that fixed incomes job is a stabilizer for the portfolio to reduce the downs that they experiences.

Sierra:

Mm-hmm.

Tre:

That's all. In your head, I guess like visually it reduces the downs, but if you can't actually access it during those downs, what good is it?

Sierra:

Yeah. It's just like a mental thing then. Yeah,

Tre:

it is. And a lot of people, a lot advisors, even some that I kind of respect, have made the mentions that, well, you'd be rebalancing at that point anyway. Like, you know, it would be a good idea to, if you're a 60 40 investor, you should always be a 60 40 investor, right through the ups and the downs. Unfortunately, I completely disagree. I think that people will and should change their approach as life happens. Mm-hmm. So for instance, if we, if we have a 60 40%, a 60 40 portfolio and we're in 2008, and that means that the 60 part of the portfolio, the equity piece, the growth piece has half it's value, I think you should be. Either selling your to rebalance, which to his point, to that advisor's point, that would happen automatically in a portfolio fund. So you wouldn't have to make the decision. So that that is the upside. But if you need to access funds, then I would want to rebalance and take it out of my fixed income. And that means that maybe now, now I'm an 80 20 investor or whatever, and I, my goal is, okay, I'm gonna revisit this. Once this crisis has happened or whatever, like

Sierra:

recovered.

Tre:

Recovered, yeah. But I really, I really want to be able to access the part of my portfolio that is the safety net.

Sierra:

Yeah. And that's why makes sense. That's, that's

Tre:

why investors, like actual investors hold cash and they hold, like you think of Warren Buffet, he holds cash.

Sierra:

Huh? It's like Exactly. You're losing, it's, yeah.

Tre:

There's just too, there's too many layers in a portfolio because a portfolio fund has a bunch of things in there.

Sierra:

Okay.

Tre:

Ton of things in there. Just one item. You just set it and forget it and it rebalances itself. You have a manager do it, but you don't actually have the ability to reach in. And take something out of that or like, like a specific

Sierra:

thing, like Yeah.

Tre:

The way I describe it, I have a picture of a spice rack in my office. Yeah. And I say if I needed a barbecue spice mix, the easiest thing for me to do is to buy a barbecue spice mix. That means every time I want barbecue spice mix, I have one container. I go and I use that container, I put it back in the shelf, who cares? Yeah. But as soon as I want a different type of spice mix. Then I have an issue with, all I have is barbecue spice mixes,

Sierra:

or if someone's allergic to one of the spices thing, okay, you

Tre:

go, that's not, let me finish my illustration before you try to complicate it. So it might be harder for me to have all my spices individually, because it means then if I need a barbecue spice mix, I now have to mix my spice mix. That means that it's more work. It's more work for me, for me as the advisor managing the money to do that. But it means that if the client then decides that I don't want a spice mix or somebody's allergic to a spice in that mix, and I'm having company over, I can exclude that. I can access individual parts of that spice rack. It's more, it's more work, it's more annoying to do. But when you get to a certain level of wealth where you want options and you need, you want somebody that will rebalance appropriately, do it without the emotional side of things, but if need be. You can just take, you can access the cumin, you can access the paprika separately from everything else and leave everything else alone. Mm-hmm. Because the markets are going crazy and the US equity is down and the international is down, but Canada is doing very well. Well, maybe I want to leave everything else to recover and just spend from Canada.

Sierra:

Mm-hmm.

Tre:

Right. That makes sense. And it's, and while I get the simplicity side of it. You get when you get to a certain level of wealth, you want options and you want to know that whatever happens in the world, you'll be okay. And that doesn't come from single ticket portfolio, like

Sierra:

a cut and paste. Kinda, yeah.

Tre:

And I, that's a really good illustration. I know the allure of it. I get it. And it is more annoying to do it the other way. It's more annoying for me. I wish I could. Unthink like that because man, my life would be easier when it comes to portfolio construction and everything like that because I could just put in it, but it's just, I just, I can't with good conscience do that. It's just you need options. You need options. I would never do that for myself. So yeah, you need options. It's

Sierra:

not like customizable at that point almost, Hey,

Tre:

no, no, it's not. And, and I, I, and part of it is when I don't customize. To that degree with clients, either It, yeah, for me it's about risk management.

Sierra:

Mm-hmm. And

Tre:

being able, and having the ability to manage risk appropriately no matter what happens in the world, no matter what happens with that individual. Like I, I never want to be in a situation where my decision, the way I invested, led to somebody not being able to do something where I could have avoided it by. Doing the extra work,

Sierra:

so. Mm-hmm.

Tre:

Anyway, you're,

Sierra:

you're definitely not that type of person. No.

Tre:

No. But anyway, that's, uh, yeah, that's basically the investment spiel that I have with clients as, as they come in. So maybe now I just send'em to this podcast and I'll be like, all right, go listen to that. And so when we get together, you'll, you'll already know. You'll be like, yeah, I liked it. That was actually

Sierra:

really good. I really liked how you like the way you questioned things. I guess I could see us if somebody didn't have any background, like how that would help them learn mm-hmm. Sort of thing. So yeah, it was really good. Huh. Thank you. Welcome. I have no bias at all. No, no, no. Once again, no,

Tre:

but the questioning start is, I mean, it's just like you get better as you, as you go on, and, because I now have a goal, you're not the only person that said that. Like it's, it is different when even like the risk tolerance. Questionnaire and stuff, which we should actually go through at some point as well. Maybe I'll put that on the list.

Sierra:

Um,

Tre:

it's different than a lot of other places will use because I'm measuring something different. Right. Yeah. I always, I tell clients that I want to try to invest to their capacity for risk, like how much risk they should be taking from my professional opinion, and then try to coach them to that level. Mm-hmm. Versus just invest according to wherever they are right now, which is subject to. Knowledge and understanding. Yeah. So many things it's like even

Sierra:

like the market, it's, yeah. Again, because I'm, because my industry was marketing, all the things you're saying, I'm relating it to that, what's happening in the world directly impacts the markets. Well, like that's, the markets are in business and stuff, you know what I mean? It's like it's all connected, so. I so connected. You just, yeah, I know. Don't worry. Well, my, my intuition is like, yeah, I'm not even making sense. Probably it makes sense in my head. I just struggle to articulate it. Just to else. Yeah. Pretty much a struggle of my life.

Tre:

Right. Okay. Next episode is a case study. So this is, which will be actually really interesting to go through. So I have a pretty detailed case study'cause it's based on. Somebody. Um, so we are going to kind of go through it. I'm gonna change a bunch of stuff in there, obviously for privacy reasons. Mm-hmm. But we're gonna go through it and discuss goals. So a lot of people will hit financial goals that they'll have and. They struggle to either come up with new ones or realize what they should be doing after that.

Sierra:

Hmm.

Tre:

So this is a couple that has kids. They have reached something I like to call velocity. So where retirement velocity, where if they stopped investing they for retirement, they would still, the markets on their own would meet their retirement goals, their base retirement goals. So that's a big milestone to reach. The question is, okay, what. What milestone should we be reaching after that? What should we, what should we be looking to do to accomplish, looking at it from a financial partner's point of view? So that'd be the next episode. Okay. Well good. Perfect. We'll see you guys in the next one.

Bye. Bye./

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Tré Bynoe CFP®, CIM®

Host
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Sierra Bynoe

Co-host